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Published by Chung & Partners

Can a Representative Director Of a Company Donate Company’s Assets to Other Legal Entity For Which He’s Serving As Its Representative Director Simultaneously Without a Consent By the Board Of Directors?

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According to the Korean Commercial Act, a transaction between a director and a company shall acquire an approval by the board of directors(Article 398 of the Commercial Act). This is for the purpose of preventing the director from using his status in engaging in a transaction of the company leading to promoting his or a third party’s interest and causing damages to the company and its shareholders.

Here comes the question: if the general meeting of shareholders adopts a resolution ratifying an interest-conflicting transaction which had not yet been approved by the board of directors, the transaction can be validated ex post facto?

The Supreme Court denied it in its Decision 2005Da4284 Delivered on May 10, 2007.

In this case, Mr. Choi Soon Young, who at that time served as the representative director of Daehan Life Insurance Co., Ltd(the plaintiff) and the president of the Shindonga Educational Institute(the defendant), had donated about 18,000,000 USD to the defendant on behalf of the plaintiff company.

The Supreme Court held that “unless there are special circumstances where there should be the consent of all shareholders or that the approval is stipulated in the articles of incorporation as the right of the shareholders’ meeting, the approval of an interest-conflicting transaction between a director and the company shall be deemed to be subject to an arbitrary decision by the board of directors, so if an interest-conflicting transaction failed to obtain the approval by the board of directors, such transaction shall not become effective even though the a resolution is passed at a shareholders’ meeting afterwards for ratification, as it does not have any right to approve”.

Also the Supreme Court held that “even though the board of directors of the plaintiff company deliberated and passed a resolution on appropriation-related documents such as the statement of donations that includes the act of donation in this case before the opening of the shareholders’ meeting to approve the financial statements and the sales report, as no document can be found in the process to prove that the board of directors of the plaintiff company deliberated and passed a resolution on whether the act of donation in this case was a fair interest-conflicting transaction, nor to prove that Choi Soon Young, who at that time served as the representative director of the plaintiff company and the president of the defendant legal entity had released important facts about his interest and other important facts to the board of directors of the plaintiff company about the act of donation in this case from the plaintiff company to the defendant legal entity, the circumstances that the board of directors of the plaintiff company deliberated and passed a resolution on the appropriation-related documents such as the statement of donations shall not be deemed to be enough to say that the board of directors of the plaintiff company approved the act of donation in this case afterwards.”

You can see the English translation of the decision here.

© 2008 Wonil Chung, a Korean Corporate Litigation Lawyer/Chung & Partners, a Korean Corporate Litigation Law Firm.  All rights reserved. Some copyrights, photos, icons, trademarks, trade dress, or other commercial symbols that appear on this post are the property of the respective owners.

Author: chungwi

Korean Licensed Lawyer

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